Mining News

Quebec’s new government can’t ignore the importance of mining

A French version of this commentary by Alana Wilson appeared in LaPresse on
April 28th, 2014.

With Quebec’s election now behind us, the Liberals must now turn their
attention to governing. And while it may not be the first item that springs to mind,
at some point Quebec’s new government must consider the importance of mining to
the provincial economy.

Just four years ago, Quebec was regarded by mining executives as having the
best policies in the world to encourage mining investment. Since then, four attempts
to revise the Mining Act and two overhauls of the taxation regime have resulted in
lost confidence and investment in the province.

Bringing a mine from discovery to production is a long, time-consuming and
risky process and any changes to the regulatory framework can significantly affect
the viability of a project. For this reason, mining exploration is deterred by
uncertain, complex, and changing policies. Yet miners in Quebec have faced policy
instability for nearly five years.

The result has been a plummet in Quebec’s attractiveness for global mining
investment, dropping from a ranking of 1st in 2009 to 21st in the 2013 Fraser Institute Annual Survey of Mining Companies, which
uses the opinions of mining executives to assess the effects of different public policy
factors on attracting or dissuading investment. Prior to its decline, Quebec was
ranked first in the world for three consecutive years, from 2007/2008 to 2009/2010.

And it’s not only the survey that shows a decline in mining-investment
attractiveness in Quebec. In October of last year, Quebec’s Statistical Institute forecast a decline of nearly 10 per
cent in mining investment in 2013, the first such drop after a decade of growing
investment in the province. Updated figures released February 11th
showed the situation was even worse than forecast: investment actually decreased
by 36.7 per cent in 2013. The situation was worse for mine exploration and
development expenditures where expenditures declined by 47.2 per cent in 2013 and have
decreased 60.7 per cent since 2011.

A recent study by the Fraser Institute dug into
Quebec’s decline in the annual survey ranking and found that uncertainty around
protected areas has been the prime deterrent for mining investment reported in the
province over the past five years. Recent policy changes in Quebec have increased
this uncertainty with commitments to protect 12 per cent of Quebec’s northern
territory and intentions to eventually exclude mining from half of this territory
covering nearly 1.2 million square kilometers. Changes to the Mining Act have also
sought to give greater power to municipalities to identify areas where mining would
not be permitted in their territories, moving Quebec away from a single, unified, and
transparent framework for mining.

Mining companies are also reporting a sharp increase in investment deterred as
a result of the taxation regime. In 2010, mining duties were increased from 12 per
cent to 16 per cent with the calculation of duties changed to a mine-by-mine basis,
rather than allowing miners to combine profits and losses across operations. A new
mining tax regime introduced in May 2013 included a minimum royalty to be paid
whether or not a mine is profitable, and an escalating tax rate will hit mining
companies harder in poor economic conditions while restricting their ability to profit
in better conditions. Such changes compound the difficulty in attracting mining
investment to the province which is already at a cost disadvantage.

Uncertainty concerning environmental regulations and regulatory duplication are
also key factors in Quebec’s decline as an increasing percentage of companies are
reporting that they are strongly deterred or would not pursue investment in Quebec
as a result. Uncertain and changing regulations make it more difficult, costly and
time-consuming to comply with regulations and add to concerns that Quebec’s
mining policy has become politicized to appease special interest groups.

Quebec was once a world leader in attracting mining investment, to great
economic benefit, yet has seen its edge slip with ongoing policy uncertainty and an
increasingly hostile attitude toward mining. If Quebec’s government wants to
restore the confidence of investors—and ensure a future stream of mining and
processing employment—it should address this uncertainty. Otherwise, it risks further
losses as exploration investment moves to more secure locations.